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Harry Markowitz
Chicago School of Economics
Markowitz 1.jpg
Birth August 24, 1927 (1927-08-24) (age 82)
Chicago, Illinois, U.S.A.
Nationality  United States
Institution Harry Markowitz Company
Rady School of Management at the University of California at San Diego
Baruch College of the City University of New York
RAND Corporation
Cowles Commission
Field Financial economics
Alma mater University of Chicago (Ph.D.)
Influences Milton Friedman
Tjalling Koopmans
Jacob Marschak
Oskar Morgenstern
Leonard Savage
John von Neumann
Opposed John Burr Williams
Contributions Modern Portfolio Theory
Efficient/ Markowitz Frontier
Sparse Matrix Methods
Simscript
Awards John von Neumann Theory Prize (1989)
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (1990)
Information at IDEAS/RePEc

Harry Max Markowitz (born August 24, 1927) is an American economist and a recipient of the John von Neumann Theory Prize and the Nobel Memorial Prize in Economic Sciences.

Markowitz is a professor of finance at the Rady School of Management at the University of California, San Diego (UCSD). He is best known for his pioneering work in Modern Portfolio Theory, studying the effects of asset risk, return, correlation and diversification on probable investment portfolio returns.

Contents

Autobiography

Autobiography of Harry M. Markowitz, The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1990, can be viewed on the official website of The Nobel Foundation[1].

Biography

Harry Markowitz was born on August 24, 1927 in Chicago, to his Jewish parents Morris and Mildred Markowitz[1]. During high school, Markowitz developed an interest in physics and philosophy, in particular the ideas of David Hume, an interest he continued to follow during his undergraduate years at the University of Chicago. After receiving his B.A., Markowitz decided to continue his studies at the University of Chicago, choosing to specialize in economics. There he had the opportunity to study under important economists, including Milton Friedman, Tjalling Koopmans, Jacob Marschak and Leonard Savage. While still a student, he was invited to become a member of the Cowles Commission for Research in Economics, which was in Chicago at the time.

Markowitz chose to apply mathematics to the analysis of the stock market as the topic for his dissertation. Jacob Marschak, who was the thesis advisor, encouraged him to pursue the topic, noting that it had also been a favorite interest of Alfred Cowles, the founder of the Cowles Commission. While researching the then current understanding of stock prices, which at the time consisted in the present value model of John Burr Williams, Markowitz realized that the theory lacks an analysis of the impact of risk. This insight led to the development of his seminal theory of portfolio allocation under uncertainty, published in 1952 by the Journal of Finance[2].

In 1952, Harry Markowitz went to work for the RAND Corporation, where he met George Dantzig. With Dantzig's help, Markowitz continued to research optimization techniques, further developing the critical line algorithm for the identification of the optimal mean-variance portfolios, lying on what was later named the Markowitz frontier. In 1955, he received a Ph.D. from the University of Chicago with a thesis on the portfolio theory. The topic was so novel that, while Markowitz was defending his dissertation, Milton Friedman argued his contribution was not economics[3]. During 1955-1956 Markowitz spent a year at the Cowles Foundation[1], which had moved to Yale University, at the invitation of James Tobin. He published the critical line algorithm in a 1956 paper and used this time at the foundation to write a book on portfolio allocation which was published in 1959[4].

Markowitz won the Nobel Memorial Prize in Economic Sciences in 1990 while a professor of finance at Baruch College of the City University of New York. In the preceding year, he received the John von Neumann Theory Prize from the Operations Research Society of America (now Institute for Operations Research and the Management Sciences, INFORMS) for his contributions in the theory of three fields: portfolio theory; sparse matrix methods; and simulation language programming (SIMSCRIPT). Sparse matrix methods are now widely used to solve very large systems of simultaneous equations whose coefficients are mostly zero. SIMSCRIPT has been widely used to program computer simulations of manufacturing, transportation, and computer systems as well as war games. SIMSCRIPT (I) included the Buddy memory allocation method, which was also developed by Markowitz.

The company that would become CACI International was founded by Herb Karr and Harry Markowitz on July 17, 1962 as California Analysis Center, Inc. They helped develop SIMSCRIPT, the first simulation programming language, at RAND and after it was released to the public domain, CACI was founded to provide support and training for SIMSCRIPT.

Markowitz now divides his time between teaching (he is an adjunct professor at the Rady School of Management at the University of California at San Diego, UCSD); video casting lectures; and consulting (out of his Harry Markowitz Company offices). He currently serves on the Board of Riverview Alternative Investment Advisors, co-founded by Steve Turi and Peter Todd in 1998, who worked with Markowitz in his Global Portfolio Research Department at Daiwa Securities. Markowitz also serves on the advisory panel of Robert D. Arnott's Newport Beach, California based investment management firm, Research Affiliates, LLC (http://www.researchaffiliates.com/) and on the Advisory Board of Mark Hebner's Irvine, California and internet based investment advisory firm, Index Funds Advisors (ifa.com).

Dr. Markowitz is co-founder and Chief Architect of GuidedChoice, a 401(k) managed accounts provider and investment advisor. Dr. Markowitz’s more recent work has included designing the backbone software analytics for the GuidedChoice investment solution and heading the GuidedChoice Investment Committee. He is actively involved in designing the next step in the retirement process: assisting retirees with wealth distribution through GuidedSpending.

Research

A Markowitz Efficient Portfolio is one where no added diversification can lower the portfolio's risk for a given return expectation (alternately, no additional expected return can be gained without increasing the risk of the portfolio). The Markowitz Efficient Frontier is the set of all portfolios that will give the highest expected return for each given level of risk. These concepts of efficiency were essential to the development of the Capital Asset Pricing Model.

Markowitz also co-edited the textbook The Theory and Practice of Investment Management with Frank J. Fabozzi of Yale School of Management.

References

  1. ^ a b c See External Links, Autobiography
  2. ^ See Selected Publications, Portfolio Selection (1952)
  3. ^ See External Links, Nobel Prize Lecture: Foundations of Portfolio Theory
  4. ^ See Selected Publications, Portfolio Selection: Efficient Diversification of Investments (1959)

Selected publications

  • Markowitz, H.M. (March 1952). "Portfolio Selection". The Journal of Finance 7 (1): 77–91. doi:10.2307/2975974.  
  • Markowitz, H.M. (April 1957). "The Elimination Form of the Inverse and Its Application to Linear Programming". Management Science 3 (3): 255–269. doi:10.1287/mnsc.3.3.255.  
  • Markowitz, H.M. (1 October 1979). Belzer, Jack; Holzman, Albert G.; Kent, Allen. eds. "SIMSCRIPT", Encyclopedia of Computer Science and Technology. 13. New York and Basel: Marcel Dekker. pp. 516. ISBN 978-082-472-263-0.  
  • Markowitz, H.M. and E. van Dijk (March/April 2003). "Single-Period Mean-Variance Analysis in a Changing World". Financial Analysts Journal 59 (2): 30–44. doi:10.2469/faj.v59.n2.2512.  

External Links (other than Publications)

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